I am in no way shape or form an accountant. Nor have I ever taken a business classes, so please take in this information with a grain of salt. Keeping an inventory is a bit tricky. What I have learned, and will share with you here, is information I have received from friends and many, many books and websites. I do believe I am on the right track, I hope.
For starters, what exactly is an inventory? From what I have gathered an inventory is basically the items you have completed for resale. Why is it important to keep track of your inventory? Because you are not allowed to deduct the expenses of items you have not sold. (ah, taxes!)
So how does one keep track on inventory? There seem to be many ways, from writing everything down in a notebook to using software such as QuickBooks. For me, right now, I am keeping track using an excel spreadsheet. (Here is a little secret about me, I love creating excel spreadsheets. Nerdy, yep; a bit sad, yep. Do I care, nope. It’s fun… so there.)
First and foremost, your expenses; you MUST keep track of everything you spend! I mean everything, including mileage it takes to get to craft store, fabric store, etc. You will need to become a hoarder of receipts. If you think it’s a business expense KEEP THE RECEIPT! I keep track of this on a spreadsheet (shocking) for now, working on getting this part into QuickBooks. Keep track of the dates, amounts, where you purchased from, what you purchased. Really it’s straight forward, but important to keep it organized, how ever you personally need to.
I keep track of every piece I make, starting when I cut the materials to the correct size. Starting with the description and the item number (every piece should have an item number, this way you can easily see what has sold- I’ll show you how I am going to do that when we chat about hang tags). The next column is “how many” I added this because sometimes I have more than one of the same item, so to make it a bit easier I group those items together. “Cost” is next, I just like seeing that column, not really sure it should be there or not. Then I keep track of the progress of the piece, ‘cut out” & “sewn” so I know where I stand in creating my actual inventory and lastly “notes and needs.”
The next piece of the inventory puzzle is “Supplies & Costs.” I am sure this has a fancy name, but I call it what it is in my world, Supplies (i.e. how much of every material needed to make a piece) and Costs (i.e. how much it costs to buy those materials).
The basics for here are, keep track of how much material you use per item you make and what that amount of material costs. Add up the costs, and this number is what the cost is to you to make one item, not including your time. Confused or asleep yet?
If you are still with me, here is the big drum roll moment… when filing taxes, you are going to have too:
Determine your inventory for the taxman! Because you have been keeping track it’s simple. Total up the money you spent of purchasing and making products (expenses) for the year, this will be “X”. Then count how many items you have not sold (on your inventory spreadsheet) and multiply that number by your per unit cost (supplies & costs) this total will be “Y”. Subtract “Y” from “X” and you get a number that is called your “cost of goods sold” (the fancy way is COGS). This is the amount you get to deduct from your taxes.
All in all, this is the super boring part for me, except for making the spreadsheets. It is so important though, to start off the right way, therefore I hope I am, I surely hope. (And to all the accountants and business people out there, I hope I did a good enough job at explaining all this). Okay- wake up now!
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5 thoughts on “day 10: how do you keep track of inventory?”
Do you by any chance have a description of how you determine COGS? For example, I buy 2gms of seed beads, but use only 4 at a time. Do I seriously need to find the cost for 1 bead?
I surely wouldn’t, but some might say yes. Seems a bit to crazy for me. I would just write down your best educated guess for all the beads on one piece taking into account the average prices for each…does that make sense?